MGM pins losses on accounting rules
HOLLYWOOD — MGM posted its third consecutive quarterly loss Monday and again blamed the impact of new accounting rules which overwhelmed contributions by hit films including breakout laffer “Legally Blonde.”
Rules now require studios to account for pic marketing costs upfront, a change from past practices that’s made for difficult earnings comparisons this year.
Some suggest that’s part of the reason MGM bounced its much-anticipated “Windtalkers” release from the fourth quarter, as the Lion seeks to stanch red ink by year’s end. But studio says pic was shifted solely because execs expected marketing problems amid ongoing U.S. military action.
In any event, the decision has left the Lion without any further fourth-quarter wide releases.
Studio previously postponed to 2002 potential fourth-quarter release “Hart’s War” as well as third-quarter releases “Rollerball” and “Killing Me Softly.” Those moves followed a changing of the guard atop MGM’s film marketing and distribution divisions.
Meanwhile, third-quarter marketing charges included much of the pricey campaign for disappointing Bruce Willis starrer “Bandits,” released two weekends into the fourth quarter on Oct. 12.
UA’s horror pic “Jeepers Creepers” and artfilm “Ghost World” marked solid box office in the third quarter.
Largely as a result of its various marketing charges, MGM posted a $16 million loss in the latest quarter, compared with a $27.1 million profit in the same period last year. Feeding the red ink was an unspecified writedown on poorly performing “Original Sin,” a modestly budgeted Antonio Banderas/Angelina Jolie starrer in which MGM is believed to have invested $8 million.
“Bandits,” a laffer that also starred Billy Bob Thornton and Cate Blanchett, “has underperformed our expectations,” MGM vice chairman Chris McGurk acknowledged. He claimed older auds targeted by the pic have been discouraged from moviegoing by current events, including the anthrax scare and other possible terrorist targeting of public places.
In an earnings conference call, MGM execs forecast a small fourth-quarter profit and said the new accounting rules won’t hurt earnings prospects in the period. Any writedown on “Bandits” would come in the final quarter, but there will be scant film-marketing charges to account for in the quarter.
Execs are hoping things will improve dramatically next year. In addition to box office from delayed 2001 releases and other theatrical bows, the Lion should reap a substantial portion of its anticipated $50 million-$100 million in “Legally Blonde” profits from title’s homevid/DVD debut next year.
MGM claimed it’s still committed to robust film releasing after a paucity of such activity in recent years. Lion is the least vertically integrated of the majors, so moviemaking reps its biggest potential cache of cash flow outside of home entertainment.
However, any third-quarter gains at MGM were traceable mostly to homevid and DVD. Excluding the new accounting principles, period’s $28.2 million in net income repped “the best quarter profits in (MGM’s) 77-year history,” officials said.
“(F)ilm and television library revenues grew by 29% in the quarter,” chairman and CEO Alex Yemenidjian noted.
Overall, MGM’s quarterly revenue rose 26% to $393.3 million.
Operating cash flow was off 79% at $9.2 million. Feature-film slippage accounted for most of that decline, while the studio’s modest TV operations posted a small cash-flow gain.
Lion’s results outpaced most analysts’ expectations. But studio execs revealed they won’t have a much-discussed “Pink Panther” movie ready for release in 2002, an announcement unlikely to build faith in the studio’s commitment to aggressive moviemaking.
“We’re committed to doing ‘Pink Panther’ right,” McGurk said. “We don’t need to fill out our release slate in 2002.”
Studio expects to release 11 MGM and United Artists pictures by the end of this year.”You can’t expect these guys to have a release every week,” Sutro analyst David Miller observed. “They’re just not that big, and they can’t afford to do that.”
Indeed, sources indicated the Lion had been looking to shore up operating capital. It’s believed “Windtalkers” alone cost well north of $100 million to shoot — costs MGM now will carry until World War II pic is released next June — and the Lion was forced to sell off some foreign rights to fund the production.
Bond on tap
Among other releases skedded for 2002 is studio’s next James Bond pic, set to begin shooting in January en route to a November bow. Though a big-budgeted affair, Bond releases have delivered consistently boffo box office for MGM in recent years.
“Because they are less vertically integrated than all the other majors, the results of any one film shows up (in the bottom line) that quarter,” Gerard Klauer Mattison analyst Jeffrey Logsdon observed. “That’s unlike a Disney or a Viacom or a Fox, where the results of a single film almost never show up in an earnings statement.”
MGM shares closed up 37¢ at $17.18 on Monday.